An extremist, not a fanatic

February 10, 2014

Ambition vs comparative advantage

Is there a trade-off between ambition and comparative advantage, implying one between mobility and efficiency?

I ask because I'm trying to resist calls from the office for me to appear in some videos, on the grounds that this is not where my comparative advantage lies; I'm not as telegenic as some of my colleagues. However, if I were the ambitious type eager to climb the greasy pole by pleasing management, I would accede to such requests even though my investment in them would be suboptimal from the organization's point of view.

In this sense, there's a trade-off between ambition and efficiency. Efficiency requires that round pegs go in round holes - that people do what their comparative advantage requires. But ambition might lead them to do other things. Esther McVey's ambition to become a politician rather than a perfectly good TV presenter, for example, has not noticeably improved the nation's well-being.

There are many other examples. The Peter principle says folk are promoted to their level of incompetence. The Dilbert principle says incompetents become bosses. In football, it's common for good coaches to become managers, often with mediocre effects. In several firms, the (mis)use of key performance indicators can encourage employees to become all-rounders, rather than specialize in what they're best at.

There are two conditions necessary for this trade-off to occur.

First, that pay is attached to jobs, rather than to quality matches between skills and jobs. If you can earn more as a second-rate manager than a first-rate coder, you might prefer to become a boss.

Secondly - as Joao Ricardo Faria stresses in a nice paper (pdf), hirers must have imperfect information. This not only causes them to make bad hires, but - worse still - might cause biased hires. For example, if they appoint people who give off "competence cues", they'll tend to recruit the irrationally overconfident. Or if they prefer to hire people in their own image - say because they are easier to monitor - underlings will have an incentive to emulate the skills of existing managers, to the detriment of comparative advantage. Or risk-averse bosses might simply prefer the known mediocrity to the potential superstar.

Equally, there are (at least) two circumstances in which the ambition-efficiency trade-off will most manifest itself.

One if is there's a lack of competitive pressures. Gary Becker famously pointed out that uncompetitive markets allow bosses to discriminate against blacks or Jews. But equally, they allow bosses to hire favourites, or simply fail to drive out of the industry firms who put square pegs into round holes.

The other is if there's a lack of technical progress. As Faria points out, rapid technical change helps to identify good performers, as these understand and adapt better to new conditions.

Now, I don't say all this to suggest all this is a knockdown argument against hierarchical capitalism; there is a great deal of ruin in any nation, and it's not clear how widespread the trade-off is. I merely want to note that there is, potentially at least, a conflict between two principles of neoclassical economics - that people respond to incentives, and that people should specialize in what they are relatively least bad at. These two principles are consistent only under particular institutional conditions.

Abi Titmuss springs to mind here, and it would have made for a better picture!

She was nurse but ditched that career for, let's call it 'modelling'.

Having said that, whether you think the nation was better off her being a nurse or a 'model' depends entirely on you prespective!

On management, they tend to be a necessary evil, but I think society should be working toward a managerless future. I also think managers are over priced. Managers like to talk about making efficiencies but getting rid of them would be one of the more obvious efficiency savings!

Your question was about doing the video. I can only answer this from my experience as someone who is a good 'technician' and a reluctant manager. I gather you might define yourself in a similar way.

To keep on doing what I liked doing, I have found that self promotion (videos, conferences, running courses, white papers, articles,blog posts, etc) is essential. I don't really like doing any of these things. I'm especially reticent about speaking at conferences to 500 people.

But you have to do these things if you want to keep on doing what you like doing. A side effect for me has been management - the greasy pole. I don't think I've been promoted to the level of my incompetence, but in a technical occupation such as mine the boss is generally technically qualified.

Also being a 'technician' I have found that I am required to attend conferences, conduct Webinars, run courses, clinics, write reports, blog posts, update forums etc etc without being a 'manager'. It is part of the job spec.

The component part of being a manager is not really any of these things but doing periodic staff reviews, disciplining, writing team plans etc etc. So the management component is a pure overhead and the aspiration for society should be to reduce this overhead to the minimum possible.